Strattec Security Corporation (NASDAQ:STRT) stock is about to trade ex-dividend in 4 days time. You can purchase shares before the 12th of September in order to receive the dividend, which the company will pay on the 27th of September.
Strattec Security's upcoming dividend is US$0.14 a share, following on from the last 12 months, when the company distributed a total of US$0.56 per share to shareholders. Based on the last year's worth of payments, Strattec Security has a trailing yield of 2.9% on the current stock price of $19.1. If you buy this business for its dividend, you should have an idea of whether Strattec Security's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Strattec Security reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, and might even be a positive due to the transfer of the company's pension liabilities to an insurance company, we would become wary if the company remained lossmaking and kept paying a dividend. A good secondary check we can do, given the loss last year, is to see if Strattec generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Strattec Security was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last 5 years, making us wonder if the dividend is sustainable at all.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Strattec Security's dividend payments per share have declined at 0.7% per year on average over the past 10 years, which is uninspiring.
To Sum It Up
Is Strattec Security an attractive dividend stock, or better left on the shelf? It's hard to get used to Strattec Security paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Strattec Security has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Want to learn more about Strattec Security's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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